Throughout much of its history, Southern California has held an image
as the land of golden opportunity and a place for new beginnings. It has
also been perceived by much of the rest of America as a
"laid-back" economy known for speculative real estate promotions
and Hollywood film-making. In truth, Los Angeles is a city built on arid
land. If the flow of imported water were to be stopped for a few weeks,
this huge metropolis would be a hot, dry place like the desert out of
which it grew.

Los Angeles is a city larger than life, the stuff of legends. This
sprawling urban society embraces many contradictions. Not unexpectedly,
its history is as colorful as its present-day reputation. As we shall see,
the building of the city, through its various stages, has been largely the
result of free-market forces.

The first shift of power away from the Mission culture and the Spanish
land grant families occurred in the early nineteenth century. Ambitious
Yankees married the daughters and hence into the families of the great
cattle ranchos. They were handed a windfall with the beginning of the
California Gold Rush in 1849. The thousands of miners who arrived during
the subsequent decade created a large demand for beef. The price of cattle
increased more than twentyfold. Then during the Civil War years, that is,
the early 1860s, a terrible drought struck and hundreds of thousands of
cattle perished. Southern California's cattle-based economy was destroyed.

Following the drought, land values in Los Angeles collapsed. An acre of
land could be bought for about ten cents. The opportunity provided by
depressed land values was seized upon by wealth created by the prosperity
of the Comstock silver mother-lode and by the building of the Central
Pacific Railroad. Southern California's bankrupt ranchos were gobbled up
by wealthy railroad-connected investors from San Francisco. Once their
investments were in place, a movement was initiated that was to set a
pattern which would continue for a century; that is, a nationwide
promotion of Southern California for its warm climate, wonderful beaches
and valleys, and an easygoing life style.

Large tracts of Los Angeles land were now owned by an elite few
Northern Californians; however, there was no market to sell off subdivided
farm parcels and there was still no systematic irrigation system.
Landowners dreamed of bringing irrigation to Los Angeles, but there was no
local capital available to finance such a project. Irrigation would not be
in place for another twenty-five years. In the meantime, sheep ranching
succeeded for a while, and then wheat and barley farming.

The first Los Angeles boom was in the late 1880s, when many people came
to Los Angeles County seeking their fortune and healthy sunshine. This
land rush, kindled by a railroad-sponsored promotion, was followed by a
collapse. The depressed prices that followed motivated the region's
largest landowners (including Harrison Gray Otis and his son-in-law Harry
Chandler, founders of the Los Angeles Times) to launch a large-scale
campaign to "sell Los Angeles" as a land of opportunity. For
more than two decades there was a mass migration from the Midwest and the
East Coast. Farmers, ranchers, professionals, retirees, schoolteachers,
speculators, and religious devotees came and brought their savings, which
they invested in Southern California real estate.

The coming of the railroads changed everything. The Southern Pacific
completed its Los Angeles route in 1883, and only three years later the
Santa Fe finished its Los Angeles spur. With a huge investment in their
new coast-to-coast rail lines and large Los Angeles land holdings, the
railroads set forth a long-term plan for growth. Southern California
citrus farming was born. Tourism and the building of towns were promoted
to attract investors, to raise land values, and to increase the value of
railroad shipments.

In the late 1860s there was a population boom as the promotions caught
on. Thousands of tourists and land speculators hurried to Los Angeles.
Lots were bought, sold and traded, and an almost instantly created
industry of real estate agents transacted more value in land sales than
the county's entire value of only a few years before. The boom proved to
be a speculative frenzy that collapsed abruptly in 1889. Much of the newly
created wealth went broke. The city as a whole, however, benefited. The
build-up had created several local irrigation districts and numerous civic
improvements. In addition, the Los Angeles population had increased from
about 11,000 in 1880, to about 60,000 in 1890.

The 1890s and the first decade of the twentieth century were
highlighted by the construction of key city-building projects: the deep
water port at San Pedro, the Los Angeles Aqueduct carrying water from the
Owens Valley, and an intercity electric railway system. These and other
projects were arranged and orchestrated mainly by two groups: Harrison
Gray Otis/Harry Chandler and the railroad alliance between Isaias Hellman
and Henry Huntington (creator of the Huntington Library and Garden in San
Marino). These and other large landholders joined in partnerships to
subdivide Hollywood, the San Fernando Valley, and northeastern Los
Angeles.

In the early 1920s, after World War I, there was a real estate and oil
boom. By 1925 there were more automobiles per capita in Los Angeles than
in any other city in the nation. Suburban growth began. Property ownership
became more decentralized. By the late 1920s numerous companies had opened
manufacturing facilities in Los Angeles County, creating thousands of
jobs. The Hollywood film business grew into a regional economic power. By
1930 an astounding 94 percent of all dwellings in Los Angeles were
single-family homes. Today, by contrast, about 52 percent of all Los
Angeles County residents live in rental housing.

The real estate speculations of the early part of the century
transformed Los Angeles from a small West Coast town into a large
metropolis. Then, unexpectedly, came the Great Depression. This protracted
economic downturn shattered the dreams of most of the middle class.

World War II marked the development of the defense and aircraft
industries in Los Angeles. After the war, subdivision housing became a
mass-production industry. This process exploded in the 1950s into a great
suburban boom. Suburbanization continued rapidly into the early 1960s.

A rivalry grew up between the affluent Westside and the Downtown
establishment. Westside wealth came mainly from entrepreneurial home
builders and from mortgage lending in the savings and loan industry.
Downtown interests were incessantly revising efforts to enhance land
values and the significance of the Central Business District. In the mid
1950s, Downtown leaders launched a plan to build Dodger Stadium in Chavez
Ravine, and in the mid 1960s the Music Center was built.

In 1955, with a population of nearly a million, Los Angeles was the
biggest city in the West. Almost from its inception it had been a mecca
for real estate investment.

By the late 1960s cheap and available land began to become scarce. As a
result, land prices escalated. As this trend continued, land prices
skyrocketed in the late 1970s. Prices shot up again in the late 1980s. By
the mid 1980s, affordable land, the original raw material of dream making
in Southern California, had become an endangered species. Developmental
activity shifted mainly to the metropolitan fringe and to infill of
intercity pockets.

Astronomically high interest rates in the recession of 1981-82 halted
most real estate activity for a while. The strong market and appreciating
prices that followed the recession were so spectacular that many
homeowners and investors were too busy gaining wealth to bother being
concerned about the recently passed recession. From 1984 to 1989 Los
Angeles real estate was the pot of gold at the end of the rainbow.

Growth coalitions of Downtown and the Westside have had a long-term
rivalry to promote their respective business centers. The Westside power
centers of Beverly Hills, Century City and Westwood vied to attract
businesses away from Downtown and into their fold. The Downtown
establishment remained focused on redevelopment of the Central Business
District.

Over the past decade and a half, there has been explosive growth in the
Downtown business district. Between 1975 and 1990 over forty high-rise
office buildings were constructed. About three-fourths of these are now
foreign owned. The 1980s rush for trophy office buildings and the increase
in international trade spurred on by Japanese, Canadian, and American
capitalists made the Downtown high-rise landscape of 1991 second only to
Tokyo as a financial center of the Pacific Rim.

This crescendo of prosperity felt the winds of change when the Japanese
stock market began its nose dive in early 1990. Until then, Japanese
capital had been a major factor in foreign investment in prime Los Angeles
properties. It would soon become evident how much the price structure of
local real estate had been supported by continuous infusions of foreign
capital. Fresh capital at the top had acted as a partial support for the
values of all types of property.

Meantime, another cross-current of change was beginning to ripple
through the real estate community. In 1986 Mayor Tom Bradley had
established a committee which, with significant community support,
produced the "L.A. 2000" report (1988) emphasizing growth
management. The idea of endless growth was losing momentum. Slow growth
sentiment and anti-Downtown discontent were beginning to be felt in the
suburbs.

Consequently, in recent years the land development industry, the most
powerful economic interest in California, has been seriously encroached
upon by a grass-roots ground swell of homeowners' associations intent on
reining in the pace of development. The politics of controlled growth are
now the order of the day.

Scientists are one of Southern California's most important products.
The aerospace industry and research firms have brought together the
largest assemblage of engineers and scientists in the world. Consequently,
the downsizing of that industry in 1991 and 1992 was a large contributing
factor to the region's economic woes in the early 1990s.

Los Angeles is one of the most ethnically diverse cities in the world.
Its population continues to increase at a startling pace. About nine
million people now live in Los Angeles County. This population is expected
to increase by twenty percent over the next two decades. The overwhelming
majority of these new residents are projected to be non-Anglos, steering
ethnicity toward even greater diversity with steadily increasing Latino
and Asian-American components.

In its history, Los Angeles has
experienced several cycles of growth and decline. In downturn periods,
property was exchanged from weak to strong hands. There have been enormous
rewards for those who bought property when prices were low, and who held
long enough for the next growth cycle. The outlook for the future requires
one to consider the present economic and social restructuring as well as
the region's ability to encourage new business expansion and opportunities
for employment.